NORRISTOWN — It was former Montgomery County Board of Commissioners Vice Chairman Joe Hoeffel that spearheaded the effort to bring the Logan Square film studio project to Markley Street — one that is now dead in the water, according to county Commissioner Bruce L. Castor, Jr.

The bad news came Tuesday that the proposed redevelopment of the Logan Square Shopping Center on Markley Street would not be coming to fruition, after county officials learned that the project was not viable and would end up costing taxpayers millions in debt service.

In a letter dated Aug. 6, 2012 from county Chief Financial Officer Uri Monson to Joseph Anania, Jr., who represents a group of project lenders, Monson called it “disturbing” that private lenders would be paid back before taxpayers under the terms of the contract.

“It is unfortunate that a previous administration committed over $24 million of resources to a project which, from the outset, had no ability to cover the county’s annual costs, and the county solicitors negotiated an unfavorable agreement, which ensured that the senior lender could achieve returns of over 14 percent annually, while the county would be required to cover the several million dollars of annual debt service beyond the county’s share of project revenues.”

On May 3, the primary lender in the project filed for foreclosure on the property after not receiving payments from the developer for nearly a year.

As reported in The Times Herald, the multi-million-dollar undertaking launched in 2007 promised a movie studio, hotel and retail space on the 24.5-acre site along Markley Street. Currently, the complex is largely barren, with a few tenants still in operation.

Following Thursday morning’s commissioners meeting, Castor said that under the prior administration, all three commissioners ultimately voted for the project. Yet, Castor was kept in the dark about warnings contained in a memorandum from the county redevelopment authority that basically called it a “bad idea.”

“The entire economic development program was administered by commissioner Hoeffel,” said Castor.

“I don’t know if (the memo) was shared with Commissioner Matthews or not. My recollection is that there (were) critical erroneous actions that were taken by the commissioners that put us in a position where we were behind other lenders and were never going to make our money back if the project went belly up.”

The memo from the county redevelopment authority, authored by Finance Director Glen Sweet and issued to Steve Nelson, director of policy, asks that the memo “not be shared with the developer or his representatives” “due to the sensitive nature of the material.”

“Seventy-seven percent of the development costs of those two parcels was to be paid from publicly funded programs,” reads the memo.

“That recent presentation also contemplated that 80 percent the county’s and 100 percent of Norristown’s available 108 loan authority will be committed to the project, essentially eliminating use of those funds for other projects in the county and Norristown, respectively. Is this the level of public support appropriate?

“The above points, we believe, represent that basic issues which the public sector needs to address and with which it needs to feel comfortable as it makes its decisions to support public funding for the project,” the memo concludes.

Castor noted the timeliness of the 2011 grand jury investigation of the commissioners and the subsequent Breakfastgate scandal, which ultimately killed any chance for Matthews’ or Hoeffel’s reelection.

“It was right about that time that Hoeffel negotiated the financing deal that resulted in what now, in hindsight, turned out to be a disaster,” he said.

Because the county’s commitment is subordinate to the debt to the lenders, the county will not see any repayment until the primary lenders are paid.

“After seeing the numbers and looking at the agreement with the senior lenders, it became quite clear that it was not a viable project, and (by) throwing good money on this project, we would just be losing more and more and increase our losses as time went on,” said commissioners Vice Chairwoman Leslie Richards.

“It made the most sense to cut out and not make it any more significant – stop the bleeding.”